This invention relates to methods and systems for operating revolving credit programs and, more specifically, to revolving credit programs in which the interest rate applied to an outstanding balance is varied.
Revolving credit programs typically are offered by banks, savings and loans, federal savings banks, credit unions and other credit providers, and operate to advance funds as cash advances or to pay for purchases made by a customer, such as through a credit card or a personal line of credit, and in some instances to pay for checks written by the customer, or to cover funds provided through other access devices, such as automatic teller machines, telephone communication devices and personal computers. Under such revolving credit programs, the customer enters into an agreement with a credit provider in which the unpaid balance of the customer""s loan is assessed a finance charge which represents either a fixed interest rate or a variable interest rate which is tied to the prime rate or some other interest rate index.
Once debt is incurred, the customer generally has three options for repayment of the debt. One option is for the customer to pay the entire outstanding balance and avoid assessment of any interest or finance charges, in the case of purchase transactions. A second option is for the customer to pay a minimum amount required by the credit provider to reduce the amount of the outstanding balance and defer the remaining outstanding balance for later payment. In that case, the customer is assessed interest or finance charges based on the remaining outstanding balance.
Under the third option, the customer pays more than the minimum required by the credit provider but less than the entire outstanding balance. If this alternative is chosen, the customer is assessed interest or finance charges in the same way as the second option.
There presently exist programs in which a tiered interest rate is applied to an outstanding balance. Specifically, different interest rates are applied to various levels of an outstanding balance. Further, systems exist in which different interest rates are applied to varying levels of purchases, or to types of purchases. All such programs are designed to encourage the credit customer to increase purchase volume and/or increase outstanding balance.
Levels of personal debt are reaching record-breaking highs and as a result, credit card delinquency rates are increasing. The ratio of total household debt to disposable income has reached a record high. Accordingly, there is a need for a revolving credit system which provides an incentive to encourage a credit customer to pay off his or her outstanding balance quickly. Furthermore, such a system should be entirely automated and operable on the platform of a personal computer or computer network.
The present invention is a fully automated system and method for providing a revolving credit program through a credit provider which helps revolving credit customers gain control over their finances and encourages responsible financial management. In a preferred embodiment of the invention, a revolving credit system and method are provided in which the interest rate finance charge applied to the outstanding balance of a customer""s account varies according to the percentage of the outstanding balance paid by a customer in a billing cycle. The greater the percentage of the outstanding balance paid off by the customer in a billing cycle, the lower the interest rate applied to the remaining unpaid outstanding balance during the next billing cycle. In the alternative, the interest rate finance charge can be varied according to the percentage of other parameters of the account, such as beginning balance, highest balance or average balance in the billing cycle.
Also in the preferred embodiment, the system and method provides a tiered interest rate structure. For example, if the credit customer pays 2% of the outstanding balance in a billing cycle, the interest applied to the remaining outstanding balance is 16.5%; if the credit customer pays 3% of the outstanding balance, the applied interest rate is reduced to 12.9%; and if the credit customer pays 5% or more of the outstanding balance, the applied interest rate is further reduced to 8.9%. Of course, other interest rates and payment percentages can be applied, as well as different numbers of interest rate xe2x80x9ctiers,xe2x80x9d without departing from the scope of the present invention.
Consequently, the system and method of the present invention is sufficiently flexible to accommodate month-to-month variations in a credit customer""s financial situation by offering a number of different payment options. The tiered applied interest rate structure of the invention allows the credit customer to choose his or her minimum payment and interest rate.
The system and method of the preferred embodiment of the present invention also provides a display, which may be on a monitor or in printed form, of the previous outstanding balance, the payments received, the finance charge applied, the new outstanding balance and the minimum payment amounts necessary to qualify the credit customer for each interest rate level.
The system is designed to be operable on a personal computer, or network of personal computers, and includes software having a set of instructions for operating the personal computer. The software is stored on a disk, tape, hard drive or other storage media, and is loaded into the memory of the computer from storage during use. All information pertaining to the account is kept in storage in the computer, as is the table of percentages and corresponding interest rates. Each transaction, whether it is a payment or a debit to the account, is also entered and stored for each account.
The system is adaptable to be used with credit card programs, home equity loan programs, and unsecured lines of credit, to consumers for personal, family and household purposes, as well as to business entities for business, agricultural, and governmental uses.
Accordingly, it is an object of the present invention to provide a system and method for operating a revolving credit program; a system and method for operating a revolving credit program which encourages a credit customer to pay off an outstanding account balance quickly; a system and method for operating a revolving credit program having a tiered interest rate structure such that a lower interest rate is applied to a remaining outstanding balance in response to higher balance percentage pay off in a billing period; and a system and method for operating a revolving credit program which runs from a personal computer and/or network platform.
Other objects and advantages of the present invention will be apparent from the following description, accompanying drawing and the appended claims.